Historical Averages Not A Meaningful Benchmark For Future Revenues

Source: Matt Fiedler and Richard Kogan, Center on Budget and Policy Priorities, August 22, 2007

The “Mid-Session Review” that the Office of Management and Budget issued last month projects that revenues will be slightly above their 30-year average in 2007, measured as a share of the economy. The Administration and many of its supporters have cited this fact as evidence that current tax policies are generating an appropriate level of revenue and the Administration’s tax cuts therefore should be made permanent without the costs being offset. Similarly, Senator Charles Grassley, the ranking Republican on the Senate Finance Committee, has cited this fact as a reason for repealing the Alternative Minimum Tax without offsetting the large costs involved.

The simple fact that the government collected a particular level of revenue in the past says little, however, about what level of revenues is appropriate today, will be appropriate or necessary in the future, or even was appropriate in the past.

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